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Last Updated : Jun 26, 2019 03:09 PM IST | Source:

IndiGo founders tiff: Issues over related party transaction offer a sneak peek into Rahul Bhatia's empire

In an interview on Tuesday, CEO Ronojoy Dutta said that the two founders, Rahul Bhatia and Rakesh Gangwal, differed over related party transactions between the airline and other InterGlobe units

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[2006 file photo] Rahul Bhatia (centre) and Rakesh Gangwal (right) with then IndiGo CEO Bruce Ashby. Source: Reuters
[2006 file photo] Rahul Bhatia (centre) and Rakesh Gangwal (right) with then IndiGo CEO Bruce Ashby. Source: Reuters
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In an interview to CNBC-TV18 on June 25, IndiGo CEO Ronojoy Dutta said the differences between the airline's two promoters - Rahul Bhatia and Rakesh Gangwal - are over related party transactions.

Moneycontrol was the first to highlight the differences between the two founders, in this article in December 2018.

The differences are specifically connected to the transactions between IndiGo, and other units of InterGlobe Enterprises, the holding company of Rahul Bhatia's business empire.


IndiGo itself is under the umbrella of InterGlobe Aviation, one of the units of InterGlobe Enterprises. Apart from aviation, the Group also has interests in hospitality, airline management, travel commerce, advanced pilot training, aircraft maintenance engineering and real estate.

Nearly each of these units has related party transactions with IndiGo.

Downplaying the rift, Dutta said the differences were "administrative" and added that Gangwal wanted to put another layer over the process that governs the related party transactions.

To be sure, related party transaction is a common feature in every conglomerate. Like Dutta said, in the Tata Group itself, there are many instances where group companies use each other's expertise. Tata Steel may sell steel to Tata Motors, or group officials may stay in Indian Hotels properties.

However, processes have to be followed when a contract of any kind is given to a fellow Group unit.

The units

While IndiGo is the flagship company of the InterGlobe Enterprises conglomerate and brings in over $4 billion annually in revenues, the Group has made significant investments in other fields too.

A look at IndiGo's annual report for 2017-18 shows the airline had several related party transactions.

Transactions with InterGlobe Air Transport and its units, the general sales agent for IndiGo, have the highest value.

Two units, InterGlobe Hotels and Caddie Hotels, provide accommodation and transport to IndiGo's crew. InterGlobe has a joint venture  - set up in 2004 - with multinational hospitality major Accor and runs the Ibis brand of hotels in India.

Likewise, the Group also has a joint venture with CAE Inc., a world leader in modelling, simulation and training for civil aviation and defence. The joint venture, CAE Simulation Training, provides training to IndiGo pilots.

Real estate arm InterGlobe Real Estate claims to manage funds and assets worth $300 million and has a portfolio of a million square feet. IndiGo's headquarters in Gurugram is owned by this unit of the Group, and thus the airline needs to pay rent.

In the interview, Dutta said related party transactions amounted to $30 million in 2018-19. In the previous year, a back of the envelope calculations showed the transaction value would have been higher.

Annual report for the financial year 2018-19 is yet not out.

Common practice 

A senior industry executive drew parallel with ousted Jet Airways founder Naresh Goyal, whose private venture was the general sales agent for the airline.

"It is a common practice," said the executive, of a promoter using privately-held companies to provide service to another listed entity.

But the underlining question, regarding the IndiGo founders, remains. "If the difference is minor, am not sure if the founders would have made a serious issue of it," said the executive.

As the above-cited Moneycontrol article had said, the founders have also differed over the appointments of senior management.

M Damodaran, the former SEBI chief, and a Non-Executive Independent Director of IndiGo and also chairman of its board, is looking into the matter regarding founders differences over related party transactions. Damodaran also heads the audit committee of IndiGo.

Dutta said talks are on between the two founders to resolve the issue.

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First Published on Jun 26, 2019 03:09 pm
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